HF SINCLAIR CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

This Item 2 contains "forward-looking" statements. See "Forward-Looking
Statements" at the beginning of Part I of this Quarterly Report on Form 10-Q. In
this document, the words "we," "our," "ours" and "us" refer only to HF Sinclair
Corporation ("HF Sinclair") and its consolidated subsidiaries or to HF Sinclair
or an individual subsidiary and not to any other person with certain exceptions.
Generally, the words "we," "our," "ours" and "us" include Holly Energy Partners,
L.P. ("HEP") and its subsidiaries as consolidated subsidiaries of HF Sinclair,
unless when used in disclosures of transactions or obligations between HEP and
HF Sinclair or its other subsidiaries. This document contains certain
disclosures of agreements that are specific to HEP and its consolidated
subsidiaries and do not necessarily represent obligations of HF Sinclair. When
used in descriptions of agreements and transactions, "HEP" refers to HEP and its
consolidated subsidiaries. References herein to HF Sinclair "we," "our," "ours,"
and "us" with respect to time periods prior to March 14, 2022 refer to
HollyFrontier and its consolidated subsidiaries and do not include the Target
Company, STC or their respective consolidated subsidiaries (collectively, the
"Acquired Sinclair Businesses"). References herein to HF Sinclair "we," "our,"
"ours," and "us" with respect to time periods from and after March 14, 2022
include the operations of the Acquired Sinclair Businesses. Unless otherwise
specified, the financial statements included herein include financial
information for HF Sinclair, which for the time period from March 14, 2022 to
March 31, 2022 includes the combined business operations of HollyFrontier and
the Acquired Sinclair Businesses.


PREVIEW

We are an independent energy company that produces and markets high-value light
products such as gasoline, diesel fuel, jet fuel, renewable diesel and other
specialty products. We own and operate refineries located in El Dorado, Kansas
(the "El Dorado Refinery"); Tulsa, Oklahoma, which comprise two production
facilities, the Tulsa West and Tulsa East facilities (collectively, the "Tulsa
Refineries"); Anacortes, Washington (the "Puget Sound Refinery"); Artesia, New
Mexico, which operates in conjunction with crude oil distillation, vacuum
distillation and other facilities situated 65 miles away in Lovington, New
Mexico (collectively, the "Navajo Refinery"); Woods Cross, Utah (the "Woods
Cross Refinery"); Sinclair, Wyoming (the "Sinclair Refinery") and Casper,
Wyoming (the "Casper Refinery"). We market our refined products principally in
the Southwest United States, the Rocky Mountains extending into the Pacific
Northwest and in other neighboring Plains states. We supply high-quality fuels
to more than 1,300 Sinclair branded stations and license the use of the Sinclair
brand at more than 300 additional locations throughout the country. In addition,
our subsidiaries produce and market base oils and other specialized lubricants
in the United States, Canada and the Netherlands, and export products to more
than 80 countries. Through our subsidiaries, we produce renewable diesel at two
of our facilities in Wyoming. We also own a 47% limited partner interest and a
non-economic general partner interest in HEP, a master limited partnership that
provides petroleum product and crude oil transportation, terminalling, storage
and throughput services to the petroleum industry, including HF Sinclair
subsidiaries.

On March 14, 2022 (the "Closing Date"), HollyFrontier Corporation
("HollyFrontier") and Holly Energy Partners, L.P. ("HEP") announced the
establishment of HF Sinclair Corporation, a Delaware corporation ("HF
Sinclair"), as the new parent holding company of HollyFrontier and HEP and their
subsidiaries, and the completion of their respective acquisitions of Sinclair
Oil Corporation (now known as Sinclair Oil LLC, "Sinclair Oil") and Sinclair
Transportation Company LLC ("STC") from The Sinclair Companies (now known as REH
Company and referred to herein as "Sinclair HoldCo"). On the Closing Date,
pursuant to that certain Business Combination Agreement, dated as of August 2,
2021 (as amended on March 14, 2022, the "Business Combination Agreement"), by
and among HollyFrontier, HF Sinclair, Hippo Merger Sub, Inc., a wholly owned
subsidiary of HF Sinclair ("Parent Merger Sub"), Sinclair HoldCo, and Hippo
Holding LLC, a wholly owned subsidiary of Sinclair HoldCo (the "Target
Company"), HF Sinclair completed its previously announced acquisition of the
Target Company by effecting (a) a holding company merger in accordance with
Section 251(g) of the Delaware General Corporation Law whereby HollyFrontier
merged with and into Parent Merger Sub, with HollyFrontier surviving such merger
as a direct wholly owned subsidiary of HF Sinclair (the "HFC Merger") and (b)
immediately following the HFC Merger, a contribution whereby Sinclair HoldCo
contributed all of the equity interests of the Target Company to HF Sinclair in
exchange for shares of HF Sinclair, resulting in the Target Company becoming a
direct wholly owned subsidiary of HF Sinclair (the "HFC Transactions"). At the
effective time of the HFC Merger, HollyFrontier became a wholly owned subsidiary
of HF Sinclair, and all of HollyFrontier's outstanding shares were automatically
converted into equivalent corresponding shares of HF Sinclair. Pursuant to the
HFC Merger, HF Sinclair became the successor issuer to HollyFrontier pursuant to
Rule 12g-3(a) under the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), and replaced HollyFrontier as the public company trading on the
New York Stock Exchange ("NYSE") under the symbol "DINO."

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In connection with the closing of the HFC Transactions, HF Sinclair issued
60,230,036 shares of HF Sinclair common stock to Sinclair HoldCo, representing
27% of the pro forma equity of HF Sinclair with a value of approximately $2,149
million based on HollyFrontier's fully diluted shares of common stock
outstanding and closing stock price on March 11, 2022. On the Closing Date,
Sinclair HoldCo made a $90.2 million cash payment to HF Sinclair related to
estimated working capital adjustments pursuant to the Business Combination
Agreement, which reduced the aggregate transaction value to approximately $2,059
million. Of the 60,230,036 shares of HF Sinclair common stock, 2,570,000 shares
are currently held in escrow to secure Sinclair HoldCo's obligations under
Section 6.22 of the Business Combination Agreement. Additionally, on the Closing
Date, and immediately prior to the consummation of the HFC Transactions, HEP
completed its acquisition of STC, Sinclair HoldCo's integrated crude and refined
products midstream business, and issued 21,000,000 common limited partner units
and paid cash consideration of $321.4 million, inclusive of working capital
adjustments, to Sinclair HoldCo in exchange for all the outstanding equity
interests of STC (the "HEP Transaction" and together with the HFC Transactions,
the "Sinclair Transactions"). Of these 21,000,000 common limited partner units,
5,290,000 units are currently held in escrow to secure Sinclair HoldCo's RINs
credit obligations to HF Sinclair under Section 6.22 of the Business Combination
Agreement. HF Sinclair, and not HEP, would be entitled to the HEP common units
held in escrow in the event of Sinclair HoldCo's breach of its RINs credit
obligations under the Business Combination Agreement.

Under the terms of the Business Combination Agreement, HF Sinclair acquired
Sinclair HoldCo's refining, branded marketing, renewables, and midstream
businesses. The branded marketing business supplies high-quality fuels to more
than 1,300 Sinclair branded stations and licenses the use of the Sinclair brand
at more than 300 additional locations throughout the United States. The
renewables business includes the operation of a renewable diesel unit located in
Sinclair, Wyoming. The refining business includes two Rocky Mountains-based
refineries located in Casper, Wyoming and Sinclair, Wyoming. Under the terms of
the Contribution Agreement, HEP acquired STC, Sinclair HoldCo's integrated crude
and refined products pipelines and terminal assets, including approximately
1,200 miles of integrated crude and refined product pipeline supporting the
Sinclair refineries and third parties, eight product terminals and two crude
terminals with approximately 4.5 million barrels of operated storage. In
addition, HEP acquired STC's interests in three pipeline joint ventures for
crude gathering and product offtake including: Saddle Butte Pipeline III, LLC
(25.06% non-operated interest); Pioneer Pipeline (49.995% non-operated
interest); and UNEV Pipeline, LLC ("UNEV") (the 25% non-operated interest not
already owned by HEP, resulting in UNEV becoming a wholly owned subsidiary of
HEP). The addition of Sinclair Oil and STC to the HollyFrontier business created
a combined company with increased scale and ability to diversify and is expected
to drive growth through the expanded refining and renewables business. In
addition, the HFC Transactions added an integrated branded wholesale
distribution network to our business.

HollyFrontier's senior management team at the Closing Date will continue to
operate the combined company. Pursuant to that certain stockholders agreement
(the "Stockholders Agreement") by and among HF Sinclair, Sinclair HoldCo and the
stockholders of Sinclair HoldCo (together with Sinclair HoldCo and each of their
permitted transferees, the "Sinclair Parties"), Sinclair HoldCo was granted the
right to nominate, and has nominated, two directors to our Board of Directors at
the Closing Date. The Sinclair HoldCo stockholders also agreed to certain
customary lock up, voting and standstill restrictions, as well as customary
registration rights, for the HF Sinclair common stock issued to the stockholders
of Sinclair HoldCo. HF Sinclair is headquartered in Dallas, Texas, with combined
business offices in Salt Lake City, Utah.

See Note 2 “Acquisitions” and Note 3 “Holly Energy Partners” in the notes to the consolidated financial statements for more information.

On May 4, 2021, HollyFrontier Puget Sound Refining LLC, a wholly owned
subsidiary of HollyFrontier, entered into a sale and purchase agreement with
Equilon Enterprises LLC d/b/a Shell Oil Products US ("Shell") to acquire Shell's
Puget Sound refinery and related assets, including the on-site cogeneration
facility and related logistics assets. The acquisition closed on November 1,
2021.

For the three months ended March 31, 2022, net income attributable to HF
Sinclair stockholders was $160.0 million compared to $148.2 million for the
three months ended March 31, 2021. Gross refining margin per produced barrel
sold in our Refining segment increased 59% for the three months ended March 31,
2022 over the same period of 2021.

Pursuant to the 2007 Energy Independence and Security Act, the Environmental
Protection Agency ("EPA") promulgated the Renewable Fuel Standard ("RFS")
regulations, which increased the volume of renewable fuels mandated to be
blended into the nation's fuel supply. The regulations, in part, require
refiners to add annually increasing amounts of "renewable fuels" to their
petroleum products or purchase credits, known as renewable identification
numbers ("RINs"), in lieu of such blending. Compliance with RFS regulations
significantly increases our cost of products sold, with RINs costs totaling
$196.3 million for the three months ended March 31, 2022. At March 31, 2022, our
open RINs credit obligations were $144.7 million. See Note 2 "Acquisitions" in
the Notes to Consolidated Financial Statements for additional information on
RINs credit obligations assumed in the Sinclair Transactions.
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Contents

Impact of COVID-19 on Our Business
The COVID-19 pandemic caused a decline in U.S. and global economic activity
starting in the first quarter of 2020. This decrease reduced both volumes and
unit margins across our businesses, resulting in lower gross margins and
earnings. Global demand for transportation fuels, lubricants and the
transportation and terminal services we provide began to improve late in the
second quarter of 2020 and has returned to pre-pandemic levels.

The extent to which our future results are affected by the COVID-19 pandemic
will depend on various factors and consequences beyond our control, such as the
effects of any new variant strains of the underlying virus, additional actions
by businesses and governments in response to the pandemic and the speed and
effectiveness of responses to combat the virus. The COVID-19 pandemic, and the
volatile regional and global economic conditions stemming from it, could also
exacerbate the risk factors identified in HollyFrontier's Form 10-K under "Risk
Factors" in Item 1A. The COVID-19 pandemic may also materially adversely affect
our results in a manner that is either not currently known or that we do not
currently consider to be a significant risk to our business.

OUTLOOK

Within our Refining segment, for the second quarter of 2022, we expect to run
between 615,000 - 645,000 barrels per day of crude oil. This guidance reflects
the strong underlying demand trends in our markets, the reduction of refined
product supply driven by the global reaction to Russia's invasion of Ukraine and
a full quarter of contribution of the Sinclair and Casper refineries.

Within our Lubricants and Specialty Products segment, for the second quarter of
2022, we expect seasonal improvement in earnings in our Rack Forward business as
well as continued strong performance in our Rack Back business due to the
reduction in base oil supply from Russia.

Within our Renewables business, we expect to complete construction of the
Artesia renewable diesel unit and commence start up in the second quarter. The
Sinclair and Cheyenne renewable diesel units and the Artesia pre-treatment unit
are all on-line. We will continue to ramp up production across these assets and
expect to generate modestly positive earnings in the quarter as we reach full
production levels. We are suspending construction of the Sinclair pre-treatment
unit until 2023 pending a review of project economics and potential other
alternatives.

In the second quarter of 2022, HEP expects to hold the quarterly distribution
constant at $0.35 per unit, or $1.40 on an annualized basis. HEP remains
committed to its distribution strategy focused on funding all capital
expenditures and distributions within operating cash flow and maintaining
distributable cash flow coverage of 1.3x or greater with the goal of reducing
leverage to 3.0-3.5x.

Our Board of Directors reinstated our regular quarterly dividend at an increased
rate of $0.40 per share, as compared to the first quarter of 2021 dividend of
$0.35 per share, effective with the dividend declared for the first quarter of
2022. Following the expected completion of our renewables capital projects in
the second quarter of 2022, we intend to resume the repurchase of common stock
under our existing $1.0 billion share repurchase program.

On March 27, 2020, the U.S. government passed the Coronavirus Aid, Relief, and
Economic Security Act (the "CARES Act"), an approximately $2 trillion stimulus
package that included various provisions intended to provide relief to
individuals and businesses in the form of tax changes, loans and grants, among
others. At this time, we have not sought relief in the form of loans or grants
from the CARES Act; however, we have benefited from certain tax deferrals in the
CARES Act and may benefit from other tax provisions if we meet the requirements
to do so. We anticipate $83 million in cash tax benefit in 2022 from the net
operating loss carryback provisions under the CARES Act.

A more detailed discussion of our financial and operating results for the three months ended March 31, 2022 and 2021 is presented in the following sections.

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RESULTS OF OPERATIONS

Financial Data

                                                                  Three Months Ended
                                                                       March 31,                                Change from 2021
                                                               2022                 2021                  Change                 Percent
                                                                                (In thousands, except per share data)
Sales and other revenues                                  $ 7,458,750          $ 3,504,293          $      3,954,457                  113  %
Operating costs and expenses:
Cost of products sold (exclusive of depreciation
and amortization):
Cost of products sold (exclusive of lower of cost
or market inventory valuation adjustment)                   6,502,012            2,960,305                 3,541,707                  120
Lower of cost or market inventory valuation
adjustment                                                     (8,551)            (200,037)                  191,486                  (96)
                                                            6,493,461            2,760,268                 3,733,193                  135
Operating expenses (exclusive of depreciation and
amortization)                                                 477,434              399,909                    77,525                   19
Selling, general and administrative expenses
(exclusive of depreciation and amortization)                  110,422               81,975                    28,447                   35
Depreciation and amortization                                 144,601              124,079                    20,522                   17

Total operating costs and expenses                          7,225,918            3,366,231                 3,859,687                  115
Income from operations                                        232,832              138,062                    94,770                   69
Other income (expense):
Earnings of equity method investments                           3,626                1,763                     1,863                  106
Interest income                                                   997                1,031                       (34)                  (3)
Interest expense                                              (34,859)             (38,386)                    3,527                   (9)

Gain on tariff settlement                                           -               51,500                   (51,500)                (100)

Gain (loss) on foreign currency transactions                      139               (1,317)                    1,456                 (111)
Gain on sale of assets and other                                3,895                1,890                     2,005                  106
                                                              (26,202)              16,481                   (42,683)                (259)
Income before income taxes                                    206,630              154,543                    52,087                   34
Income tax expense (benefit)                                   21,329              (28,307)                   49,636                 (175)
Net income                                                    185,301              182,850                     2,451                    1
Less net income attributable to noncontrolling
interest                                                       25,327               34,633                    (9,306)                 (27)

Net income attributable to HF Sinclair shareholders $159,974

    $   148,217          $         11,757                    8  %
Earnings per share attributable to HF Sinclair
stockholders:
Basic                                                     $      0.90          $      0.90          $              -                    -  %
Diluted                                                   $      0.90          $      0.90          $              -                    -  %
Cash dividends declared per common share                  $         -          $      0.35          $          (0.35)                (100) %
Average number of common shares outstanding:
Basic                                                         175,081              162,479                    12,602                    8  %
Diluted                                                       175,081              162,479                    12,602                    8  %




Balance Sheet Data

                                March 31, 2022       December 31, 2021
                                  (Unaudited)
                                            (In thousands)
Cash and cash equivalents      $       592,278      $          234,444
Working capital                $     2,627,703      $        1,696,990
Total assets                   $    17,733,097      $       12,916,613
Long-term debt                 $     3,374,701      $        3,072,737
Total equity                   $     8,876,977      $        6,294,465



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Other Financial Data

                                                                            

Three months completed March, 31st,

                                                                              2022                   2021
                                                                                   (In thousands)
Net cash provided by operating activities                              $       461,036          $    62,326
Net cash used for investing activities                                 $      (385,176)         $  (147,064)
Net cash provided by (used for) financing activities                   $       281,386          $   (89,561)
Capital expenditures                                                   $       158,296          $   149,961
EBITDA (1)                                                             $       359,766          $   281,344



(1)Earnings before interest, taxes, depreciation and amortization, which we
refer to as "EBITDA," is calculated as net income (loss) attributable to HF
Sinclair stockholders plus (i) interest expense, net of interest income,
(ii) income tax provision, and (iii) depreciation and amortization. EBITDA is
not a calculation provided for under GAAP; however, the amounts included in the
EBITDA calculation are derived from amounts included in our consolidated
financial statements. EBITDA should not be considered as an alternative to net
income or operating income as an indication of our operating performance or as
an alternative to operating cash flow as a measure of liquidity. EBITDA is not
necessarily comparable to similarly titled measures of other companies. EBITDA
is presented here because it is a widely used financial indicator used by
investors and analysts to measure performance. EBITDA is also used by our
management for internal analysis and as a basis for financial covenants. EBITDA
presented above is reconciled to net income under "Reconciliations to Amounts
Reported Under Generally Accepted Accounting Principles" following Item 3 of
Part I of this Form 10-Q.

Segment Operating Data

Our operations are organized into five reportable segments, Refining, Renewable Energy, Marketing, Lubricants and Specialty Products, and HEP. See Note 15 “Segment Information” in the Notes to the Consolidated Financial Statements for additional information on our reportable segments.

Refine segment operational data

The disaggregation of our refining geographic operating data is presented in two
regions, Mid-Continent and West, to best reflect the economic drivers of our
refining operations. The Mid-Continent region is comprised of the El Dorado and
Tulsa Refineries. The West region is comprised of the Puget Sound, Navajo, Woods
Cross, Sinclair and Casper Refineries. The Puget Sound Refinery was acquired
November 1, 2021, and thus is included for the period January 1, 2022 to March
31, 2022. In addition, the refinery operations of the Sinclair and Casper
Refineries are included for the period March 14, 2022 (date of acquisition)
through March 31, 2022. The following tables set forth information, including
non-GAAP performance measures, about our consolidated refinery operations. The
cost of products and refinery gross and net operating margins do not include the
non-cash effects of lower of cost or market inventory valuation adjustments and
depreciation and amortization. Reconciliations to amounts reported under GAAP
are provided under "Reconciliations to Amounts Reported Under Generally Accepted
Accounting Principles" following Item 3 of Part I of this Form 10-Q.

                                                                    Three Months Ended March 31,
                                                                    2022 (8)                2021
Mid-Continent Region
Crude charge (BPD) (1)                                               290,200               216,290
Refinery throughput (BPD) (2)                                        305,390               229,560
Sales of produced refined products (BPD) (3)                         280,260               210,680
Refinery utilization (4)                                               111.6   %              83.2  %

Average per produced barrel (5)
Refinery gross margin                                           $       9.32           $      6.45
Refinery operating expenses (6)                                         6.02                  9.91
Net operating margin                                            $       3.30           $     (3.46)

Refinery operating expenses per throughput barrel (7)           $       5.53           $      9.09


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                                               Three Months Ended March 31,
                                                   2022 (8)                2021
Mid-Continent Region
Feedstocks:
Sweet crude oil                                                  63  %      59  %
Sour crude oil                                                   14  %      13  %
Heavy sour crude oil                                             18  %      22  %
Other feedstocks and blends                                       5  %       6  %
Total                                                           100  %     100  %

Sales of produced refined products:
Gasolines                                                        50  %      51  %
Diesel fuels                                                     33  %      34  %
Jet fuels                                                         7  %       5  %
Fuel oil                                                          1  %       1  %
Asphalt                                                           3  %       3  %
Base oils                                                         4  %       4  %
LPG and other                                                     2  %       2  %
Total                                                           100  %     100  %


West Region
Crude charge (BPD) (1)                                       234,880        131,880
Refinery throughput (BPD) (2)                                259,340        144,600
Sales of produced refined products (BPD) (3)                 241,910        

144,260

Refinery utilization (4)                                        70.6  %     

91.0%

Average per produced barrel (5)
Refinery gross margin                                       $  16.61       $  10.26
Refinery operating expenses (6)                                 9.33        

8.09

Net operating margin                                        $   7.28       

$2.17

Refinery operating expenses per throughput barrel (7)       $   8.70       $   8.07

Feedstocks:
Sweet crude oil                                                   23  %          24  %
Sour crude oil                                                    55  %          59  %
Heavy sour crude oil                                               7  %           -  %
Black wax crude oil                                                6  %           8  %
Other feedstocks and blends                                        9  %           9  %
Total                                                            100  %         100  %

Sales of produced refined products:
Gasolines                                                         52  %          55  %
Diesel fuels                                                      27  %          36  %
Jet fuels                                                          6  %           -  %
Fuel oil                                                          10  %           2  %
Asphalt                                                            2  %           4  %
LPG and other                                                      3  %           3  %
Total                                                            100  %         100  %


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                                                                         Three Months Ended March 31,
                                                                        2022 (8)                 2021
Consolidated
Crude charge (BPD) (1)                                                    525,080               348,170
Refinery throughput (BPD) (2)                                             564,730               374,160
Sales of produced refined products (BPD) (3)                              522,170               354,940
Refinery utilization (4)                                                     88.6   %              86.0  %

Average per produced barrel (5)
Refinery gross margin                                               $       12.69           $      8.00
Refinery operating expenses (6)                                              7.55                  9.17
Net operating margin                                                $        5.14           $     (1.17)

Refinery operating expenses per throughput barrel (7)               $        6.98           $      8.70


Feedstocks:
Sweet crude oil                             45  %      45  %
Sour crude oil                              32  %      31  %
Heavy sour crude oil                        13  %      14  %
Black wax crude oil                          3  %       3  %
Other feedstocks and blends                  7  %       7  %
Total                                      100  %     100  %

Sales of produced refined products:
Gasolines                                   51  %      54  %
Diesel fuels                                31  %      35  %
Jet fuels                                    6  %       3  %
Fuel oil                                     5  %       1  %
Asphalt                                      2  %       3  %
Base oils                                    2  %       2  %
LPG and other                                3  %       2  %
Total                                      100  %     100  %



(1)Crude charge represents the barrels per day of crude oil processed at our
refineries.
(2)Refinery throughput represents the barrels per day of crude and other
refinery feedstocks input to the crude units and other conversion units at our
refineries.
(3)Represents barrels sold of refined products produced at our refineries
(including HFC Asphalt) and does not include volumes of refined products
purchased for resale or volumes of excess crude oil sold.
(4)Represents crude charge divided by total crude capacity (BPSD). As a result
of our acquisition of the Puget Sound Refinery on November 1, 2021, and the
Sinclair and Casper Refineries on March 14, 2022, our consolidated crude
capacity increased from 405,000 BPSD at March 31, 2021 to 669,000 BPSD at March
31, 2022.
(5)Represents average amount per produced barrel sold, which is a non-GAAP
measure. Reconciliations to amounts reported under GAAP are provided under
"Reconciliations to Amounts Reported Under Generally Accepted Accounting
Principles" following Item 3 of Part I of this Form 10-Q.
(6)Represents total Refining segment operating expenses, exclusive of
depreciation and amortization, divided by sales volumes of refined products
produced at our refineries.
(7)Represents total Refining segment operating expenses, exclusive of
depreciation and amortization, divided by refinery throughput.
(8)We acquired the Sinclair and Casper Refineries on March 14, 2022. Refining
operating data for the three months ended March 31, 2022 includes crude oil and
feedstocks processed and refined products sold at our Sinclair and Casper
Refineries for the period March 14, 2022 through March 31, 2022 only, averaged
over the 90 days in the three months ended March 31, 2022.

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Renewables Operating Data

The following table presents information about our renewable energy operations and includes our Sinclair companies for the period March 14, 2022 (the date of acquisition) until March 31, 2022.

                                           Three Months Ended March 31, 

2022

Renewable energies

Sales volumes (in thousand gallons)                                    

4,943

Average per produced gallon (1)
Renewables gross margin                   $                             

0.63

Renewables operating expenses (2)                                       5.48
Net operating margin                      $                            (4.85)


(1)Represents average quantity per gallon product sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following item 3 in Part I of this Form 10-Q. (2) Represents the total operating expenses of the renewable energy sector, excluding depreciation, divided by the sales volumes of renewable diesel produced in our renewable diesel units.

Marketing operating data

The following table presents information about our marketing operations and includes our Sinclair business for the period March 14, 2022 (the date of acquisition) until March 31, 2022.

                                           Three Months Ended March 31, 2022
Marketing
Number of branded sites                                                1,323
Sales volumes (in thousand gallons)                                     

84,913

Margin per gallon of sales (1)            $                             

0.07

(1)Represents average quantity per gallon sold, which is a non-GAAP measure. Reconciliations to amounts reported under GAAP are provided under “Reconciliations to Amounts Reported Under Generally Accepted Accounting Principles” following item 3 in Part I of this Form 10-Q.

Lubricants and Specialty Products Operational Data

The following table sets forth information about our lubricants and specialty
products operations.

                                                        Three Months Ended March 31,
                                                              2022                   2021

Lubricants and specialty products

  Throughput (BPD)                                                       

19,340 20,410

  Sales of produced refined products (BPD)                               

35,010 32,570

Sales of manufactured refined products:

  Finished products                                                       51  %       52  %
  Base oils                                                               30  %       26  %
  Other                                                                   19  %       22  %
  Total                                                                  100  %      100  %



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Table of Contents Additional financial data attributable to our Lubricants and Specialty Products segment is presented below.

                                                                                                                     Total Lubricants
                                                                      Rack Forward                                     and Specialty
                                               Rack Back (1)              (2)               Eliminations (3)             Products
                                                                                  (In thousands)
Three months ended March 31, 2022
Sales and other revenues                     $      278,586          $   687,947          $        (211,524)         $      755,009
Cost of products sold                        $      178,539          $   537,562          $        (211,524)         $      504,577
Operating expenses                           $       30,814          $    35,187          $               -          $       66,001
Selling, general and administrative
expenses                                     $        6,207          $    35,542          $               -          $       41,749
Depreciation and amortization                $        7,557          $    13,037          $               -          $       20,594

Income from operations                       $       55,469          $    66,619          $               -          $      122,088

Three months ended March 31, 2021
Sales and other revenues                     $      173,442          $   483,246          $        (132,125)         $      524,563
Cost of products sold                        $      132,532          $   331,116          $        (132,125)         $      331,523
Operating expenses                           $       28,621          $    32,132          $               -          $       60,753
Selling, general and administrative
expenses                                     $        6,739          $    38,814          $               -          $       45,553
Depreciation and amortization                $        7,305          $    12,816          $               -          $       20,121

Income (loss) from operations                $       (1,755)         $    68,368          $               -          $       66,613



(1)Rack Back consists of our Petro-Canada Lubricants, Inc. ("PCLI') base oil
production activities, by-product sales to third parties and intra-segment base
oil sales to Rack Forward.
(2)Rack Forward activities include the purchase of base oils from Rack Back and
the blending, packaging, marketing and distribution and sales of finished
lubricants and specialty products to third parties.
(3)Intra-segment sales of Rack Back produced base oils to Rack Forward are
eliminated under the "Eliminations" column.


Results of operations – Quarters ended March 31, 2022 Compared to the three months ended March 31, 2021

Summary

Net income attributable to HF Sinclair stockholders for the three months ended
March 31, 2022 was $160.0 million ($0.90 per basic and diluted share), an $11.8
million increase from a net income of $148.2 million ($0.90 per basic and
diluted share) for the three months ended March 31, 2021. The increase in net
income was principally driven by stronger product demand, which resulted in an
increase in refinery gross margins and higher refined product sales volumes. Net
income for the three months ended March 31, 2021 was impacted by winter storm
Uri, which increased natural gas costs across our refining system. Refinery
gross margins for the three months ended March 31, 2022 increased to $12.69 per
produced barrel sold from $8.00 for the three months ended March 31, 2021.

Sales and Other Revenues
Sales and other revenues increased 113% from $3,504.3 million for the three
months ended March 31, 2021 to $7,458.8 million for the three months ended
March 31, 2022 principally due to the increase in sales prices and higher
refined product sales volumes, in part due to the acquisition of the Puget Sound
Refinery and the acquisition of Sinclair Oil. Sales and other revenues for the
three months ended March 31, 2022 and 2021 included $27.9 million and $25.3
million, respectively, of HEP revenues attributable to pipeline and
transportation services provided to unaffiliated parties. Additionally, sales
and other revenues included $753.6 million and $522.0 million in unaffiliated
revenues related to our Lubricants and Specialty Products segment for the three
months ended March 31, 2022 and 2021, respectively.

Cost of Products Sold
Total cost of products sold increased 135% from $2,760.3 million for the three
months ended March 31, 2021 to $6,493.5 million for the three months ended
March 31, 2022 principally due to higher crude oil costs and higher refined
product sales volumes. During the first quarters of 2022 and 2021, we recognized
a lower of cost or market inventory valuation adjustment benefits of $8.6
million and $200.0 million, respectively.

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Gross Refinery Margins
Gross refinery margin per produced barrel sold increased 59% from $8.00 for the
three months ended March 31, 2021 to $12.69 for the three months ended March 31,
2022. The increase was due to the effects of an increase in the average per
barrel sold sales price during the current year quarter, partially offset by
increased crude oil and feedstock prices. Gross refinery margin per barrel does
not include the non-cash effects of lower of cost or market inventory valuation
adjustments or depreciation and amortization. See "Reconciliations to Amounts
Reported Under Generally Accepted Accounting Principles" following Item 3 of
Part I of this Form 10-Q for a reconciliation to the income statement of sale
prices of products sold and cost of products purchased.

Operating Expenses
Operating expenses, exclusive of depreciation and amortization, increased 19%
from $399.9 million for the three months ended March 31, 2021 to $477.4 million
for the three months ended March 31, 2022 primarily due to the acquisition of
the Puget Sound Refinery.

Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 35% from $82.0 million
for the three months ended March 31, 2021 to $110.4 million for the three months
ended March 31, 2022 primarily due to higher professional services and legal
costs incurred in connection with the Sinclair Transactions. See Note 2
"Acquisitions" in the Notes to Consolidated Financial Statements for additional
information on this acquisition.

Depreciation and Amortization Expenses
Depreciation and amortization increased 17% from $124.1 million for the three
months ended March 31, 2021 to $144.6 million for the three months ended
March 31, 2022. This increase was due principally to depreciation and
amortization attributable to the acquisition of the Puget Sound Refinery and
capitalized improvement projects.

Interest Expense
Interest expense was $34.9 million for the three months ended March 31, 2022
compared to $38.4 million for the three months ended March 31, 2021. This
decrease was primarily due to lower net losses related to our catalyst financing
arrangements during the three months ended March 31, 2022 as compared to the
same period in the prior year.

For the three months ended March 31, 2022 and 2021, interest expense attributable to our HEP segment was $13.6 million and $13.2 millionrespectively.

Gain on Tariff Settlement
For the three months ended March 31, 2021, we recorded a gain of $51.5 million
upon the settlement of a tariff rate case. See Note 14 "Contingencies" in the
Notes to Consolidated Financial Statements for additional information on this
case and settlement.

Gain (Loss) on Foreign Currency Transactions
Remeasurement adjustments resulting from the foreign currency conversion of the
intercompany financing notes payable by PCLI net of mark-to-market valuations on
foreign exchange forward contracts with banks which hedge the foreign currency
exposure on these intercompany notes was a net gain of $0.1 million and a net
loss of $1.3 million for the three months ended March 31, 2022 and 2021,
respectively. For the three months ended March 31, 2022 and 2021, gain (loss) on
foreign currency transactions included losses of $6.4 million and $6.7 million,
respectively, on foreign exchange forward contracts (utilized as an economic
hedge).

Income Taxes
For the three months ended March 31, 2022, we recorded an income tax expense of
$21.3 million compared to a benefit of $28.3 million for the three months ended
March 31, 2021. This increase was principally due to higher pre-tax income
during the three months ended March 31, 2022 compared to the same period of
2021. Our effective tax rates were 10.3% and (18.3)% for the three months ended
March 31, 2022 and 2021, respectively. The increase in the effective tax rate is
principally due to the relationship between the pre-tax results and the earnings
attributable to the noncontrolling interest that is not included in income for
tax purposes. The difference in the U.S. federal statutory rate and the
effective tax rate for the three months ended March 31, 2022 was primarily due
to the impact of federal tax credits and the decrease in the state tax rate
applied to our deferred tax assets and liabilities as a result of the Sinclair
Transactions.


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LIQUIDITY AND CAPITAL RESOURCES

HF Sinclair Credit Agreement
On April 27, 2022, after giving effect to the consummation of the exchange
offers and the issuance of the HF Sinclair Senior Notes (as defined below), HF
Sinclair entered into a $1.65 billion senior unsecured revolving credit facility
maturing in April 2026 (the "HF Sinclair Credit Agreement"). The HF Sinclair
Credit Agreement may be used for revolving credit loans and letters of credit
from time to time and is available to fund general corporate purposes. The HF
Sinclair Credit Agreement replaced the $1.35 billion senior unsecured revolving
credit facility of HollyFrontier (the "Terminated HFC Credit Agreement"), which
was terminated on April 27, 2022. At March 31, 2022, HollyFrontier was in
compliance with all covenants, had no outstanding borrowings and had outstanding
letters of credit totaling $2.3 million under the Terminated HFC Credit
Agreement.

HFC Bond Exchange
On April 27, 2022, HF Sinclair completed its offers to exchange any and all
outstanding HollyFrontier 2.625% senior notes maturing 2023 (the "HollyFrontier
2.625% Senior Notes"), 5.875% senior notes maturing 2026 (the "HollyFrontier
5.875% Senior Notes") and 4.500% senior notes maturing 2030 (the "HollyFrontier
4.500% Senior Notes" and, collectively, the "HollyFrontier Senior Notes") for
2.625% senior notes maturing 2023 (the "HF Sinclair 2.625% Senior Notes"),
5.875% senior notes maturing 2026 (the "HF Sinclair 5.875% Senior Notes") and
4.500% senior notes maturing 2030 (the "HF Sinclair 4.500% Senior Notes" and,
collectively, the "HF Sinclair Senior Notes") to be issued by HF Sinclair and
cash. Additionally, HF Sinclair solicited consents to adopt certain amendments
to the indenture governing the HollyFrontier Senior Notes.

Following settlement of the exchange offers and consent solicitations, the
HF Sinclair The Senior Notes consisted of the following:

Global Principal

                                                                            Amount (as of April
Title of Series of HF Sinclair Senior Notes                                 

27, 2022)

                                                                               (In thousands)
2.625% HF Sinclair Senior Notes maturing 2023                              $           290,348
5.875% HF Sinclair Senior Notes maturing 2026                              $           797,100
4.500% HF Sinclair Senior Notes maturing 2030                              $           325,034



The HF Sinclair Senior Notes are unsecured and unsubordinated obligations of
ours and rank equally with all our other existing and future unsecured and
unsubordinated indebtedness. Each series of HF Sinclair Senior Notes has the
same interest rate (including interest rate adjustment provisions, as
applicable), interest payment dates, maturity date and redemption terms as the
corresponding series of HollyFrontier Senior Notes. The HF Sinclair Senior Notes
were issued in exchange for the HollyFrontier Senior Notes pursuant to a private
exchange offer exempt from registration under the Securities Act of 1933, as
amended.

In connection with the issuance of the HF Sinclair Senior Notes, HF Sinclair
agreed to use its commercially reasonable efforts to file (and have declared
effective) a registration statement with respect to a registered offer to
exchange the HF Sinclair Senior Notes for substantially identical registered
notes. HF Sinclair will be obligated to pay additional interest if it does not
complete the exchange offer on or prior to April 27, 2023, or if a shelf
registration statement with respect to the HF Sinclair Senior Notes (if required
to be filed) is not declared effective by the dates indicated in the
Registration Rights Agreement.

Following the settlement-delivery of the exchange offers and consent solicitations, as of
April 27, 2022the HollyFrontier The senior notes that were not tendered and exchanged and that remain outstanding consisted of the following:

Global Principal

                                                                              Amount (as of April 27,
Title of Series of HollyFrontier Senior Notes                                          2022)
                                                                                  (In thousands)
2.625% HollyFrontier Senior Notes maturing 2023                               $             59,652
5.875% HollyFrontier Senior Notes maturing 2026                               $            202,900
4.500% HollyFrontier Senior Notes maturing 2030                               $             74,966



In connection with the exchange offers and consent solicitations, HollyFrontier
amended the indenture governing the HollyFrontier Senior Notes to eliminate (i)
substantially all of the restrictive covenants, (ii) certain of the events which
may lead to an "Event of Default", (iii) the SEC reporting covenant and (iv)
with respect to the HollyFrontier 2.625% Senior Notes and the HollyFrontier
4.500% Senior Notes only, the offer to repurchase such senior notes upon certain
change of control triggering events.
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Contents

HF Sinclair Financing Arrangements
Certain of our wholly owned subsidiaries entered into financing arrangements
whereby such subsidiaries sold a portion of their precious metals catalyst to a
financial institution and then leased back the precious metals catalyst in
exchange for cash. The volume of the precious metals catalyst and the lease rate
are fixed over the term of each lease, and the lease payments are recorded as
interest expense. The current leases mature in one year or less. Upon maturity,
we must either satisfy the obligation at fair market value or refinance to
extend the maturity.

HEP Credit Agreement
HEP has a $1.2 billion senior secured revolving credit facility maturing in July
2025 (the "HEP Credit Agreement") and is available to fund capital expenditures,
investments, acquisitions, distribution payments, working capital and for
general partnership purposes. It is also available to fund letters of credit up
to a $50 million sub-limit and has an accordion feature that allows HEP to
increase the commitments under the HEP Credit Agreement up to a maximum amount
of $1.7 billion. During the three months ended March 31, 2022, HEP had net
borrowings of $301.5 million under the HEP Credit Agreement. At March 31, 2022,
HEP was in compliance with all of its covenants, had outstanding borrowings of
$1.1 billion and no outstanding letters of credit under the HEP Credit
Agreement.

On April 8, 2022, HEP and Holly Energy Finance Corp. issued $400 million
aggregate principal amount of 6.375% senior notes maturing April 2027 (the "HEP
6.375% Senior Notes") in a private placement conducted pursuant to Rule 144A and
Regulation S under the Securities Act of 1933, as amended. The HEP 6.375% Senior
Notes were issued at par for net proceeds of approximately $393 million, after
deducting the initial purchasers' discounts and commissions and estimated
offering expenses, are unsecured and impose certain restrictive covenants and
other terms consistent with the HEP 5.0% Senior Notes described in Note 10
"Debt" in the Notes to Consolidated Financial Statements. The net proceeds from
the offering of the HEP 6.375% Senior Notes were used to partially repay
outstanding borrowings under the HEP Credit Agreement.

See note 10 “Debt” of the notes to the consolidated financial statements for more information on our debt instruments.

Liquidity

We believe our current cash and cash equivalents, along with future internally
generated cash flow and funds available under our credit facilities, will
provide sufficient resources to fund currently planned capital projects and our
liquidity needs for the foreseeable future. We expect that, to the extent
necessary, we can raise additional funds from time to time through equity or
debt financings in the public and private capital markets. In addition,
components of our long-term growth strategy include the optimization of existing
units at our facilities and selective acquisition of complementary assets for
our refining operations intended to increase earnings and cash flow. We also
expect to use cash for payment of cash dividends, which are at the discretion of
our Board of Directors, and, upon the expected completion of our renewables
capital projects in the second quarter of 2022, for the repurchase of common
stock under our share repurchase program.

Our standalone (excluding HEP) liquidity was approximately $1.9 billion at
March 31, 2022, consisting of cash and cash equivalents of $577.3 million and an
undrawn $1.35 billion credit facility. On April 27, 2022, we increased the size
of the HF Sinclair credit facility to $1.65 billion.

We consider all highly-liquid instruments with a maturity of three months or
less at the time of purchase to be cash equivalents. These primarily consist of
investments in conservative, highly-rated instruments issued by financial
institutions, government and corporate entities with strong credit standings and
money market funds. Cash equivalents are stated at cost, which approximates
market value.

In November 2019, our Board of Directors approved a $1.0 billion share
repurchase program, which replaced all existing share repurchase programs,
authorizing us to repurchase common stock in the open market or through
privately negotiated transactions. The timing and amount of stock repurchases
will depend on market conditions and corporate, regulatory and other relevant
considerations. This program may be discontinued at any time by our Board of
Directors. As of March 31, 2022, we had not repurchased common stock under this
stock repurchase program, and we do not intend to repurchase common stock under
this program until completion of our ongoing renewables capital projects. In
addition, we are authorized by our Board of Directors to repurchase shares in an
amount sufficient to offset shares issued under our compensation programs.

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Cash Flows - Operating Activities

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Net cash flows provided by operating activities were $461.0 million for the
three months ended March 31, 2022 compared to $62.3 million for the three months
ended March 31, 2021, an increase of $398.7 million. The increase in operating
cash flows was primarily due to the increase in gross refinery margins,
partially offset by higher operating expenses.

Changes in working capital increased operating cash flows by $213.7 million and
$14.1 million, for the three months ended March 31, 2022 and 2021, respectively.
Changes in working capital items adjust for the timing of receipts and payments
of actual cash.

Cash Flow – Investing Activities and Planned Capital Expenditures

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
For the three months ended March 31, 2022, our net cash flows used for investing
activities were $385.2 million. On March 14, 2022, we closed the Sinclair
Transactions and paid cash of $231.2 million. The remainder of the purchase
consideration was funded with the issuance of HF Sinclair common stock and HEP
common units. See Note 2 "Acquisitions" in the Notes to Consolidated Financial
Statements for additional information on the Sinclair Transactions. Cash
expenditures for properties, plants and equipment for the three months ended
March 31, 2022 were $158.3 million primarily due to expenditures related to our
renewable diesel units. Cash expenditures for properties, plants and equipment
include HEP capital expenditures of $14.1 million for the three months ended
March 31, 2022.

For the three months ended March 31, 2021 our net cash flows used for investing
activities were $147.1 million. Cash expenditures for properties, plants and
equipment for the three months of ended March 31, 2021 were $150.0 million
primarily due to expenditures related to our renewable diesel units. Cash
expenditures for properties, plants and equipment include HEP capital
expenditures of $33.2 million for the three months ended March 31, 2021.

HF Sinclair Corporation
Each year our Board of Directors approves our annual capital budget which
includes specific projects that management is authorized to undertake.
Additionally, when conditions warrant or as new opportunities arise, additional
projects may be approved. The funds appropriated for a particular capital
project may be expended over a period of several years, depending on the time
required to complete the project. Therefore, our planned capital expenditures
for a given year consist of expenditures appropriated in that year's capital
budget plus expenditures for projects appropriated in prior years which have not
yet been completed. Refinery turnaround spending is amortized over the useful
life of the turnaround.

The refining industry is capital intensive and requires on-going investments to
sustain our refining operations. This includes replacement of, or rebuilding,
refinery units and components that extend the useful life. We also invest in
projects that improve operational reliability and profitability via enhancements
that improve refinery processing capabilities as well as production yield and
flexibility. Our capital expenditures also include projects related to renewable
diesel, environmental, health and safety compliance and include initiatives as a
result of federal and state mandates.

Our refinery operations and related emissions are highly regulated at both
federal and state levels, and we invest in our facilities as needed to remain in
compliance with these standards. Additionally, when faced with new emissions or
fuels standards, we seek to execute projects that facilitate compliance and also
improve the operating costs and / or yields of associated refining processes.

HEP

Each year the Holly Logistic Services, L.L.C. board of directors approves HEP's
annual capital budget, which specifies capital projects that HEP management is
authorized to undertake. Additionally, at times when conditions warrant or as
new opportunities arise, special projects may be approved. The funds allocated
for a particular capital project may be expended over a period in excess of a
year, depending on the time required to complete the project. Therefore, HEP's
planned capital expenditures for a given year consist of expenditures approved
for capital projects included in its current year capital budget as well as, in
certain cases, expenditures approved for capital projects in capital budgets for
prior years. In addition, HEP may spend funds periodically to perform capital
upgrades or additions to its assets where a customer reimburses HEP for such
costs. The upgrades or additions would generally benefit the customer over the
remaining life of the related service agreements.

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Expected capital and turnaround cash spending for 2022 is as follows.

                                                    Expected Cash Spending 

Vary

                                                           (In millions)

HF Sinclair Capital Expenditures

   Refining                                  $       240.0                  

$260.0

   Renewables                                        250.0                  

320.0

   Lubricants and Specialty Products                  45.0                       60.0
   Marketing                                          15.0                       25.0
   Corporate                                          90.0                      110.0
   Turnarounds and catalyst                          110.0                      150.0
   Total HollyFrontier                               750.0                      925.0

   HEP
   Maintenance                                        20.0                       25.0
   Expansion and joint venture investment              5.0                       10.0
   Refining unit turnarounds                          30.0                       40.0
   Total HEP                                          55.0                       75.0
   Total                                     $       805.0                  $ 1,000.0


Cash flow – Financing activities

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
For the three months ended March 31, 2022, our net cash flows provided by
financing activities were $281.4 million. During the three months ended
March 31, 2022, HEP had net borrowings of $301.5 million under the HEP Credit
Agreement and paid distributions of $17.0 million to noncontrolling interests.

For the three months ended March 31, 2021, our net cash flows used for financing
activities were $89.6 million. During the three months ended March 31, 2021, we
paid $57.7 million in dividends. Also during the period, HEP had net repayments
of $17.5 million under the HEP Credit Agreement and paid distributions of $20.0
million to noncontrolling interests. For the three months ended March 31, 2021,
HEP received contributions from noncontrolling interests of $6.3 million.

Contractual obligations and commitments

H. F. Sinclair Society

There have been no material changes in our long-term contractual obligations during the three months ended March 31, 2022 with the exception of certain contracts which have been supported in Sinclair transactions as noted below.

                                                                               Payments Due by Period
    Contractual Obligations and
            Commitments                       Total               2022             2023 & 2024           2025 & 2026          Thereafter
                                                                                   (In thousands)
Supply agreements (1)                      $ 479,984          $ 479,984          $          -          $          -          $        -
Transportation agreements (2)                447,769             32,032                85,418                85,418             244,901
Total                                      $ 927,753          $ 512,016          $     85,418          $     85,418          $  244,901



(1)We have long-term supply agreements to secure certain quantities of crude oil
used in the production process at market prices. We have estimated future
payments under these fixed-quantity agreements expiring in 2022 using current
market prices.
(2)Consists of contractual obligations under agreements with third parties for
the transportation of crude oil to our refineries under contracts expiring
between 2029 and 2034.

HEP

During the three months ended March 31, 2022, HEP had net borrowings of $301.5
million resulting in $1,141.5 million of outstanding borrowings under the HEP
Credit Agreement at March 31, 2022.

In April 2022HEP issued $400 million 6.375% Aggregate Principal Amount of Senior Notes Maturing April 2027.

                                       51

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Table of Contents There were no other material changes to HEP’s long-term contractual obligations during this period.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities as of the date of the financial statements. Actual results may
differ from these estimates under different assumptions or conditions.

Our significant accounting policies are described in "Part II, Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Estimates" in HollyFrontier's Annual Report on
Form 10-K for the year ended December 31, 2021. Certain critical accounting
policies that materially affect the amounts recorded in our consolidated
financial statements include the use of the last-in, first-out ("LIFO") method
of valuing certain inventories, assessing the possible impairment of certain
long-lived assets and goodwill, and assessing contingent liabilities for
probable losses.

Inventory Valuation: Inventories related to our refining operations are stated
at the lower of cost, using the LIFO method for crude oil and unfinished and
finished refined products, or market. In periods of rapidly declining prices,
LIFO inventories may have to be written down to market value due to the higher
costs assigned to LIFO layers in prior periods. In addition, the use of the LIFO
inventory method may result in increases or decreases to cost of sales in years
that inventory volumes decline as the result of charging cost of sales with LIFO
inventory costs generated in prior periods. An actual valuation of inventory
under the LIFO method is made at the end of each year based on the inventory
levels at that time. Accordingly, interim LIFO calculations are based on
management's estimates of expected year-end inventory levels and are subject to
the final year-end LIFO inventory valuation.

Our renewables inventories that are valued at the lower of LIFO cost or market
reflect a valuation reserve of $0.2 million and $8.7 million at March 31, 2022
and December 31, 2021, respectively. A new market reserve of $0.2 million as of
March 31, 2022 was based on market conditions and prices at that time. The
effect of the change in the lower of cost or market reserve was a decrease to
cost of products sold totaling $8.6 million for the three months ended March 31,
2022.

Inventories consisting of process chemicals, materials and maintenance supplies
and RINs are stated at the lower of weighted-average cost or net realizable
value. Inventories of our Petro-Canada Lubricants and Sonneborn businesses are
stated at the lower of cost, using the first-in, first-out method, or net
realizable value.

To March 31, 2022the LIFO value of our refining inventories was equal to cost.

Valuation of Business Combinations
We recognize and measure the assets acquired and liabilities assumed in a
business combination based on their estimated fair values at the acquisition
date. Any excess or surplus of the purchase consideration when compared to the
fair value of the net tangible assets acquired, if any, is recorded as goodwill
or gain from a bargain purchase. The fair value of assets and liabilities as of
the acquisition date are often estimated using a combination of approaches,
including the income approach, which requires us to project future cash flows
and apply an appropriate discount rate; the cost approach, which requires
estimates of replacement costs and depreciation and obsolescence estimates; and
the market approach which uses market data and adjusts for entity-specific
differences. We use all available information to make these fair value
determinations and engage third-party consultants for valuation assistance. The
estimates used in determining fair values are based on assumptions believed to
be reasonable but which are inherently uncertain. Accordingly, actual results
may differ materially from the projected results used to determine fair value.

Contingencies

We are subject to proceedings, lawsuits and other claims related to
environmental, labor, product and other matters. We are required to assess the
likelihood of any adverse judgments or outcomes to these matters as well as
potential ranges of probable losses. A determination of the amount of reserves
required, if any, for these contingencies is made after careful analysis of each
individual issue. The required reserves may change in the future due to new
developments in each matter or changes in approach such as a change in
settlement strategy in dealing with these matters.


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RISK MANAGEMENT

We use certain strategies to reduce some commodity price and operational risks.
We do not attempt to eliminate all market risk exposures when we believe that
the exposure relating to such risk would not be significant to our future
earnings, financial position, capital resources or liquidity or that the cost of
eliminating the exposure would outweigh the benefit.

Commodity Price Risk Management
Our primary market risk is commodity price risk. We are exposed to market risks
related to the volatility in crude oil and refined products, as well as
volatility in the price of natural gas used in our refining operations. We
periodically enter into derivative contracts in the form of commodity price
swaps, forward purchase and sales and futures contracts to mitigate price
exposure with respect to our inventory positions, natural gas purchases, sales
prices of refined products and crude oil costs.

Foreign Currency Risk Management
We are exposed to market risk related to the volatility in foreign currency
exchange rates. We periodically enter into derivative contracts in the form of
foreign exchange forward contracts to mitigate the exposure associated with
fluctuations on intercompany notes with our foreign subsidiaries that are not
denominated in the U.S. dollar.

From March 31, 2022we have the following notional contract volumes related to all outstanding derivative instruments used to mitigate commodity price and currency risk:

                                                                                           Notional Contract Volumes by Year of Maturity
Derivative Instrument                         Total Outstanding Notional                   2022                                      2023                              Unit of Measure

NYMEX futures (WTI) - short                           2,120,000                          2,120,000                                        -                          Barrels
Forward gasoline and diesel contracts
- long                                                  805,000                            805,000                                        -                          Barrels

Foreign currency forward contracts                  450,707,774                        340,773,326                              109,934,448                          U.S. dollar
Forward commodity contracts (platinum)
(1)                                                      38,723                              3,800                                   34,923                          Troy ounces



(1)Represents an embedded derivative within our catalyst financing arrangements,
which may be refinanced or require repayment under certain conditions. See Note
10 "Debt" in the Notes to Consolidated Financial Statements for additional
information on these financing arrangements.

The following sensitivity analysis provides the hypothetical effects of market price movements on the commodities covered by our derivative contracts:

                                                                 Estimated 

Change in fair value in March

31,

Commodity-based Derivative Contracts                                   2022                    2021
                                                                            

(000s) Hypothetical 10% change in underlying commodity prices $20,849 $4,420



Interest Rate Risk Management
The market risk inherent in our fixed-rate debt is the potential change arising
from increases or decreases in interest rates as discussed below.

For the fixed rate HF Sinclair Senior Notes and HEP Senior Notes, changes in
interest rates will generally affect fair value of the debt, but not earnings or
cash flows. The outstanding principal, estimated fair value and estimated change
in fair value (assuming a hypothetical 10% change in the yield-to-maturity
rates) for this debt as of March 31, 2022 is presented below:

                                                                    Estimated
                                 Outstanding       Estimated        Change in
                                  Principal       Fair Value       Fair Value
                                                (In thousands)
HollyFrontier Senior Notes      $ 1,750,000      $ 1,783,443      $    32,278

HEP Senior Notes                $   500,000      $   474,605      $    14,475



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  Table of Content
For the variable rate HEP Credit Agreement, changes in interest rates would
affect cash flows, but not the fair value. At March 31, 2022, outstanding
borrowings under the HEP Credit Agreement were $1.1 billion. A hypothetical 10%
change in interest rates applicable to the HEP Credit Agreement would not
materially affect cash flows.

Our operations are subject to hazards of petroleum processing operations,
including but not limited to fire, explosion, cyberattacks and weather-related
perils. We maintain various insurance coverages, including property damage,
business interruption and cyber insurance, subject to certain deductibles and
insurance policy terms and conditions. We are not fully insured against certain
risks because such risks are not fully insurable, coverage is unavailable, or
premium costs, in our judgment, do not justify such expenditures.

Financial information is reviewed on the counterparties in order to review and
monitor their financial stability and assess their ongoing ability to honor
their commitments under the derivative contracts. We have not experienced, nor
do we expect to experience, any difficulty in the counterparties honoring their
commitments.

We have a risk management oversight committee consisting of members from our
senior management. This committee oversees our risk enterprise program, monitors
our risk environment and provides direction for activities to mitigate
identified risks that may adversely affect the achievement of our goals.

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